The consumer price index, the key gauge of inflation in the world's second largest economy, was "lower than market expectations" according to the National Bureau of Statistics, but still above Beijing's four percent full-year target.

The figure, which follows a 4.6 percent increase in December and a more than two-year high of 5.1 percent in November, comes despite three interest rate hikes in four months and several increases in the amount of money banks must keep in reserve.

Brian Jackson, a Hong Kong-based senior strategist at Royal Bank of Canada, said pressure on prices would remain "uncomfortably strong" for the next few months.

"The policy focus will remain on curbing inflation, and we expect to see another 50 basis points of rate hikes and a faster pace of currency appreciation in coming months," he said.

New monthly lending data provided a ray of hope for policymakers however.

The value of new loans fell to 1.04 trillion yuan ($158 billion), down about 23 percent year on year.

A torrent of lending over the past two years -- officially encouraged at first as a shield against the global financial crisis -- has helped spur inflation, and the January data suggested government curbs were having some effect.

But analysts said the overall picture indicated Beijing would need to step up its inflation fight.

Li Huiyong, chief economist at Shenyin & Wanguo Securities Co, wrote in a research note that his firm expects two more rate hikes this year and further increases in the bank reserve ratio, designed to squeeze lending.

He said authorities were also likely to allow a five percent strengthening of the yuan this year, as a stronger yuan helps fend off price rises among imported commodities.

Inflation has become Beijing's top economic concern as it struggles to keep a lid on rising costs of food and other key items to head of public unrest.

The continued high prices came despite an adjustment in the index that lowered the weight of soaring food costs.

The statistics bureau downplayed the change, saying the index is tweaked annually, but the adjustment triggered speculation that Beijing was trying to paint a rosier picture than was warranted.

A Dow Jones Newswires poll of 15 economists had forecast inflation at 5.4 percent.

"The general feeling in the market is that without the change in weighting, the January CPI would definitely have been more than five percent," Alvin Cheng, associate director of Prudential Brokerage in Hong Kong, was quoted as saying by Dow Jones Newswires.

Yao Wei, a Hong Kong-based economist with Societe Generale, said that either way, the data "cannot change the fact that the general economy is overheating and inflationary pressure is high".

Despite the change, food costs continued to show strong growth in January, with grain prices up 15.1 percent, the bureau said.

The grain supply situation has become an increasing source of official anxiety as a drought across northern China over the past four months has raised fears that the important winter wheat crop could be severely affected.

At the same time, prices of fresh fruit grew 34.8 percent, the bureau said.

Inflation, particularly related to food, has a history of sparking unrest in China.

Tuesday's data did not include real estate prices, which also have climbed sharply over the past year.

Chinese shares ended flat on Tuesday, with traders saying investors were cautious out of fear the data could lead to further tightening measures.

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News